If franchisees derive few obvious benefits from the franchise, they may be tempted to act in a manner contrary to the strict terms of the agreement. For example, they may use unauthorized marketing activities, offer services or goods not authorized in the franchise agreement, or not disclose revenue that may trigger payments to the franchisee. However, franchisees should be very careful when doing any of these things, as they likely give the franchisee the right to claim damages from the franchisee. If in doubt, ask for advice. The franchise agreement may also have contractual obligations (mainly for the franchisee) after the termination or expiration of the contract. The franchisee must: a franchise is not covered by the deed if it is a two-stage system (i.e. only the franchisor and franchisees, excluding intermediate parties) or if all UK parties are REGISTERED for VAT purposes. For this reason, many franchise agreements only come into effect when the franchisee is registered on the VAT rate and end immediately when this registration is cancelled or revoked. Successful franchises benefit both parties and it is possible that problems or disputes can be resolved through an open and honest discussion between franchisors and franchisees. If no compromise is possible, legal advice is essential to avoid contractual pitfalls. Gannon are experienced in all kinds of contractual disputes, and we are happy to talk to you through your situation to find a way to find the best solution.
We have written elsewhere about force majeure and frustration as possible protection against contractual commitments during this period. Whether it applies to the coronavirus depends entirely on the wording of the clause concerned. Most franchise agreements contain a force majeure clause that delays the performance of obligations and gives the parties the right to terminate the contract only if the force majeure event lasts for many months. There are certain documents that a franchisee must give you before entering into a franchise agreement. There are laws that must be followed when franchising in Australia, including the Franchise Code of Conduct and the Australian Consumer Act. However, these laws cannot guarantee the success of the business or that your money is always protected. A franchise can fail, just like any other business. For reasons I will not discuss in detail, most, if not all, franchises fall under the definition of a „trading system“ (which is now much broader than before 1996). If an agreement meets the definition of a franchise agreement, it is covered by the code, even if someone doesn`t call it a „franchise.“